Gold climbs as oil plunge pressures stock markets

Gold bars and granules are pictured at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna October 23, 2012. REUTERS/Heinz-Peter Bader

NEW YORK/LONDON (Reuters) - Gold rebounded on Wednesday from a five-week low as an oil price slump pushed down stock markets and a weaker U.S. dollar made bullion cheaper for holders of other currencies. [O/R] .DXY

The U.S. Treasury yield curve was the flattest in nearly a decade as investors evaluated hawkish Federal Reserve policy and softening inflation. [MKTS/GLOB]

Gold is highly sensitive to rising rates and yields, which lift the opportunity cost of holding non-yielding assets such as bullion while boosting the dollar, in which it is priced.

Spot gold XAU= was up 0.3 percent at $1,246.67 an ounce by 3:27 p.m. EDT (1927 GMT), while U.S. gold futures GCcv1 settled up 0.2 percent at $1,245.80.

Gold has fallen around 4 percent from a high of $1,295.97 early this month.

But traders were sceptical that gold had hit bottom.

“Momentum certainly seems to be lower for the moment,” said MKS PAMP trader Alex Thorndike in a note.

“(But) there does seem to be a little renewed buying interest below $1,250, so we feel a period of consolidation is likely,” he added.

Strong technical support at the 200-day moving average at around $1,237 would provide the floor from which gold could climb back toward $1,275, said Boele.

Analysts at Standard Chartered said in a note they expected the Fed to raise rates twice, rather than three times, next year and the gold should rise to $1,300 an ounce by the end of 2017.

Several Fed officials have said the bank should push ahead with rate rises, but the head of the Chicago Federal Reserve said on Tuesday he was increasingly concerned that soft inflation meant the bank would struggle to get price pressures back to its 2 percent objective. [US/]

Among other precious metals, spot palladium XPD= was up 2.4 percent at $889 an ounce after an unexpected rise in U.S. existing home sales in May.

“This positive indicator also signals that if the economy is improving, auto sales should continue to grow. This leads today’s strength in palladium which benefits from that play,” said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.

Palladium is used for emission-controlling catalytic converters in petrol vehicles and is benefiting from a shift away from diesel cars, said Natixis analyst Bernard Dahdah.

Silver XAG= was down 0.2 percent at $16.43 an ounce, after falling to a six-week low at $16.33, while platinum XPT= was up 0.6 percent at $924 an ounce.